Will Silver (And Gold) Prices Rise Now that the Feds Are Launching Criminal and Civil Investigations Into Manipulation of the Silver Market?

Federal agents have launched parallel criminal and civil probes of JPMorgan Chase and its trading activity in the precious metals market, The Post has learned.

The probes are centering on whether or not JPMorgan, a top derivatives holder in precious metals, acted improperly to depress the price of silver, sources said.

The Commodities Futures Trade Commission is looking into civil charges, and the Department of Justice’s Antitrust Division is handling the criminal probe, according to sources, who did not wish to be identified due to the sensitive nature of the information.

The probes are far-ranging, with federal officials looking into JPMorgan’s precious metals trades on the London Bullion Market Association’s (LBMA) exchange, which is a physical delivery market, and the New York Mercantile Exchange (Nymex) for future paper derivative trades.

JPMorgan increased its silver derivative holdings by $6.76 billion, or about 220 million ounces, during the last three months of 2009, according to the Office of Comptroller of the Currency.

Regulators are pulling trading tickets on JPMorgan’s precious metals moves on all the exchanges as part of the probe, sources tell The Post.

The probes stem from testimony from whistleblower Andrew Maguire – a London metals trader formerly of Goldman Sachs – saying that gold and silver bullion markets are rigged that (and see this). One of his specific allegations is that JP Morgan has been fraudulently suppressing the price of silver.

Omnis’ Jim Rickards, GATA’s Adrian Douglas and others have also demonstrated that the big bullion dealers and ETFs don’t have nearly as much as physical bullion as they claim.

This could cause a rise in the price of silver (and gold) if either one of the following occurs:

(1) The investigations cause the price suppression schemes to stop, as the price manipulators know that someone is watching. If the suppression stops, the prices will naturally rise.

or

(2) The investigations cause enough investors to lose confidence and demand physical delivery of silver (or gold). Because there is less physical metals than claimed (and more paper derivatives), enough demand for physical delivery would reveal the game of musical chairs for what it is, driving the price of physical metals higher.

Of course, if enough investors hear about the investigations, that alone could cause more people to buy silver (and gold), thus driving up prices.